Finally!!!!!!!! My FIRST DEAL EVER!!!!
Contractor · Columbia, TN · Member since 2015 · 52 posts · 24 votes
I finally put up an offer and was accepted. I placed a $ 2,000 bid on a NPN of $ 92,000, but the house has a value of only $ 65,000 max. I'm thinking if I can get the current occupant to agree with a restructured and lower principal balance that I can turn this into a Performing Note. If not, I can still foreclose and sell the house 20-30% below market value and still make some money. This is my first deal, hope it all goes well....
Allin,
Congratulations on getting into a deal.
The purchase price was $2k and the RE Value is $65k and UPB is $92k. Is this a first lien or a second lien? What state is the subject property in? Also, when was the last payment made on the borrower's account?
That is an unusually low purchase price for a first lien worth $65k.
FCI does not do any title work. That is the title company which the report is from. I also was not aware that FCI does any level of real due diligence which includes reconciling the title report that was ordered or any other level of file review. I have heard some of that misunderstanding before.
To clean up some of your jargon:
Mortgagee = Lender
Mortgagor = Borrower
You are the Mortgagee when you buy a loan.
You would not hire a "property inspector" to inspect the home. More like an agent or appraiser. As a Mortgagee you have limited rights to enter the property. So property "evaluations" are typically exterior only while the property is occupied.
If a borrower vacates a property you may NOT simply rent it out. It is the borrower's property still NOT the Mortgagee's. The borrower must still be foreclosed or turn over the deed.
Offering cash for keys is a method of getting the borrower to sign over the deed in lieu of foreclosure. Often times called a DIL. If the borrower does DIL you can enter the property but that doesn't mean you will not still have to foreclose. Getting the property deed is not the same thing as having clear title to the property.
Anyhow, back to your asset that you purchased. I am concerned for you that price is too low and there is serious defect in the loan you purchased. That loan, if first position, should have been north of $23k. So something here doesn't line up well. Is the property in disrepair, in which case it is not really worth $65k until it is fixed up? If so, what is the value of the property as is, right now?
While every once in a while a patient investor can pick off a pretty good deal in NPN's, they still follow a general market price level. When a price is excessively low, like in this case if the lien is in first position, then the low price should be a red flag that something is wrong and you should look for that defect and ensure you can deal with it.
I got the title search back. Here is what is portrayed:
The title is filled with city liens for uncut grass, boarded house violations, judgments and a tax lien dated to 2008. Adding everything up is over $ 15,000 in fines.
Note Purchase: $ 2,000
Liens & Judgements: $ 15,000
Foreclosure costs: $ 4,000
Opportunity costs: unknown but could be positive
Hassle with bureaucracy of Chicago
Lots of headaches and money for each paperwork
submittal request: maybe more than $ 1,000
Value of home according to COMPS $ 40,000 - $ 48,000
Selling to an investor or a buyer for $ 30,000 - $ 35,000
IS IT WORTH IT????? Options of anyone are greatly appreciated.....
If I recall correctly: on FCI exchange you can order a BPO. I'm not sure if that comes with any pictures or anything but at least with pictures you'd have a visual to know the current position of what you are dealing with.
If currently the property is unoccupied (big "if" I know) then uncut grass seems like an easy fix but I don't know if that will remove the city lien or that's just something that has to be paid.
Honestly it does seem like there is a lot going on with this note (pretty sure you can do a title search on FCI before buying & there are some remarkable things you can find on the Internet about properties btw) but I'd make a list and see if I'm willing to deal with the headaches one by one (and also cumulatively).
Dion is always very informative and information is great. But regardless of where we learn (different people learn differently) it's not knowledge that's power but applied knowledge that's power. There are too many examples of that to list or even draw on just one of them lol.
I have never attended any sort of note school or anything but if I sat through a multi-day seminar about notes I'm not sure I'd retain much - although I'm sure I would feel like I learned a lot. With Biggerpockets I get to learn a lot and I feel like I'm retaining because a lot of information IS repeated and it's not all hitting me at once but in spurts (very concentrated spurts but still). This is not a slam on anyone or anything but just a comment on my own experiences learning. I find that regardless of how you learn that learning through experiences sticks with pretty much everybody.
In other words: learning is awesome. Biggerpockets is awesome. Doing deals is awesome. Everyone should keep posting so we can all learn. :)
Hmmm where to start on Dion's response?
I won't comment on what training the OP did or didn't receive. I will stick to my experience with the training I received.
The training I received from Note School was, in my opinion, excellent. They do encourage doing full due diligence.
As to my portfolio it is a mix of Performing notes, a few NP notes, REO purchases (found through contacts with my mentor), and a wholesale property I bought with a BP partner. Some of our Performing notes started out as NP notes that we took back and resold with owner financing, some were bought as performing notes. Quite a MIX. We expect to resell the REO purchases we made with owner financing.
I will say that the training I received has helped me to expand my horizons. At the end of November we sold a property for 55k that our local contacts swore was worth only 25-30k. We were able to get a better price because of the training we received through our mentor program. We have another in MI we sold for 20k over what my realtor said we could get, again because of our training. We are in the process of approving a short sale on a NP note that will result in 35-40k net profit. It is doubtful we would have done any of these deals without the training we received and the connections we made through out mentor program.
I wil also say this- we are active in our mentor program, we go to the seminars and have been to a weekend retreat. This is a small industry and we are working to build relationships with large players, to understand what direction they are going and why. Our mentorship provides us with a fellowship of fellow investors. We recently had diner with a small group of people that collectively held over a thousand notes.
We are getting value from what we have invested, please stop trying to tell me I haven't I see the results every day. We have paid for our mentorship several times over and are happy with the investment.
I had bought a hud house in 2006 sold it on land contract with a contingency of minor repairs and that I could sell the note at any time. Sold the note 2008
even with the Note being seasoned for 2 years and great payer it was still a little hard to sell,but we'll worth it and you hear about it a lot more now.
There where a lot of people said that I couldn't do it and it wouldn't work.
PP $10,900
Rent $667 a month for 2 years
Sold $37,800
I'm not a note buyer, but would do it if the right opportunity came along, my corporate background is something along these lines.
$2k is a pretty low entry point, hard to worry too much on that, I've made bigger bets than that on marketing that didn't pan out, just for perspective.
Anyway, keep in mind all those liens don't have to be paid off at face value. You can call all of them and offer to buy the lien/debt. I did a short term loan for a guy once and called and bought all of his liens at fifty cents on the dollar knowing they were all about to get paid off once. Depends on who has the lien, of course, but many will play ball.
Lots of unknowns here. Is the debtor still in the property? I would think you could offer to reduce their debt and restructure super low payments and never worry about the liens. "you owe me $92,000. From my research, the house is worth $38,000. I tell you what, if you can give me 10% down and pay the rest at $350/mo, then I'll reduce your loan by $60,000. Need the $3,200 by the end of the month, though" Never know, of course, but the options are endless when you are in that cheap and they still need a place to live. Who cares about the liens if your exit isn't to sell it?
You can always just sue on the note and/or offer a $4k settlement on $92k. Or whatever, not saying any of these are THE thing to do, I don't know the situation enough to say what I'd do, just trying to expand your thought process on how to monetize this thing.
The liens mentioned are municipal and won't carry much of a discount though it does not hurt to try. The likely outcome here is not reinstatement. The property is boarded up per the OP and the borrower is likely long gone. Perhaps years. The disrepair of the property would also be a barrier to reinstatement depending on how bad it is and the lack of capital the borrower has. Further, extending credit - via reinstatement or modification is troublesome in a property that is not in live-able condition.
The likely outcome here is foreclosure. To access that better the OP has to get a better handle on the current value of the property and the amount of capital it will take to cure. Chicago has ordinances to pursue the mortgagee as if they are an owner. That is above and beyond liability on title via liens. In other words, as the story continues to sort of unfold, if the OP decides to write off the investment and do nothing, that may not be the end of the liability. The city can take the mortgagee and the owner to court and fine the mortgagee.
Pursuing note only and not foreclosure is a viable option though it is a longer disposition when it all said and done.
I think the elephant in the room here, as Wayne alluded to, is the value of the collateral is still not well understood. At first it was $65k. Then it was $45k. Now that number seems a little questionable. The OP has to get eyes on the property and determine real As Is value and costs to repair. This is in addition to ensuring the property is secure and winterized and remains squatter free. As they say in GOT - winter is coming.
There is some time sensitive stuff lingering in the background. Some decisive moves need to be made by the OP to understand the real options. The plan so far seems to have been figure it out post purchase which is not a wise move.
Just because the entry is low doesn't mean there is actually value here. Often times with these low value liens, there is not any. While some many of the liens, with or without discounted payoffs, can be paid from a closing other items will require capital. Foreclosure, servicing, potential repairs, etc. So far, every other owner of this loan has written it off. That can't be ignored.
Like I said, get out there and get eyes on the property and disrepair. From there a real AS IS value can be derived. From there, an understanding of value at the point of possession post sale can be accessed. With that in hand additional capital expenditures into the real property can be figured out and what impact those dollars will have on resale value of the property.
As an aside, there is likely no option of retrading this note for anything more than the $2k it was purchased for. So I would spend any time contemplating that type of situation right now. First, I would get to the bottom of what did buy and what potential liability you have to the asset and to what degree you must invest further to mitigate or resolve the asset.
Bob,
My rebuttal to your post is simply the evidence these programs don't work seems to be everywhere. Your mentor seems to be a feature that most of the other folks, at least those who I have had contact with and those who tend to post on these boards do not have. So I guess the moral of the story is your results do not seem duplicated by the mass of students running around.
The point, in my opinion, still stands - these guru programs did not prepare this OP for this investment. It is almost text book the wrong way to go about things. There was and even to this point still isn't, a plan of attack on disposition. There is a subtle concept here that because the price of entry was so low, that all sorts of options must be present. That seems to be fleeting.
I mean, doing due diligence post purchase here is a bit insane. Further, that seems to ignore the potential future liability the Mortgagee may have with the municipality. In addition, basic and prudent investing standards simply didn't take place. We sort of stand here with no idea of what the 'real' value is of the collateral. That is sort of a big swing and miss in my book and while folks make their own destiny, it seems blame can still be allocated, if not whole at least in part, to these programs.
As far as the mentor thing, to some degree that is guru magic speak for finding someone who knows more about the asset and industry than you. You will have no argument from me that is indeed beneficial to the newbie. Provided the mentor actually knows something. Do you need to go to a seminar to find that person? No. Should you pay thousands of dollars for that person to teach you? No. That's absurd.
The other issue that seems to be at hand here is, the tuition fee would be nice to have to deploy into the asset as opposed to being in the guru's pocket. I have seen that arise pretty darn often, thousands spent on class and not enough money to work through the asset afterwards. It begs the question is who really benefits from the class. It doesn't actually seem to be the student.
I would happily pit our due diligence service against the curriculum of the guru course any day of the week. It doesn't cost thousands and the newbie would learn exponentially more while at the same actually investing. (it actually already happens) I don't consider myself a 'mentor' any more than any other professional does. The point is, there are plenty of folks in the industry who are doing business not selling classes. Those guys are probably better folks to have relations with than these folks who subscribe to secret knowledge and club type atmospheres. Like I said, I hope the key chain is nice.